Chinese startup DeepSeek’s introduction of its latest AI models, which it claims rival or surpass the leading U.S. models at a fraction of the cost, is shaking up the global tech landscape. The company has gained attention in AI circles worldwide after revealing in a recent paper that training its DeepSeek-V3 model required less than $6 million in computing power using Nvidia H800 chips.
DeepSeek’s AI Assistant, powered by DeepSeek-V3, has now surpassed ChatGPT to become the highest-rated free app on Apple’s U.S. App Store. This has led to growing skepticism about the rationale behind major U.S. tech firms’ plans to invest billions in AI. As a result, stocks of several big tech players, including Nvidia, have taken a hit.
Reaction have started to pour in from across the world
Vivek Ramaswamy said in a post on X
“Sputnik-like moments are a good thing. We don’t need to freak out, we just need to wake up.”
Brian Jacobsen, Chief Economist at Annex Wealth Management, reacted to DeepSeek’s potential impact on the AI sector, saying, “If it’s true that DeepSeek is the proverbial ‘better mousetrap,’ that could disrupt the entire AI narrative that has helped drive the markets over the last two years. It could mean less demand for chips, less need for a massive buildout of power production to fuel the models, and less need for largescale datacenters. However, it could also mean that AI becomes more accessible and help kickstart the development of a wide array of useful applications.” He also emphasised the risks of concentration in investments, warning, “Concentration risk—having too much in one stock or one theme—can feel good when those few names or ideas are on the ascent, but it is even more dangerous when disruptions take place.”
![Deepseek logo and the Chinese flag are seen in this illustration taken January 27, 2025. REUTERS/Dado Ruvic/Illustration.](https://www.financialexpress.com/wp-content/uploads/2025/01/diya-2025-01-27T212631.779.jpg?w=620)
Chris Larkin, Managing Director at E*TRADE from Morgan Stanley, noted the growing importance of upcoming tech earnings: “What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space. That could make this week’s megacap tech earnings even more critical to market sentiment.” He also pointed out that the market would be watching for signs of a shift in Fed policy: “No one expects a rate cut on Wednesday, but everyone will be looking for some signs of longer-term dovishness from the Fed.” Larkin also warned, “But don’t forget surprises out of Washington. The Colombia tariff spat may increase concerns that the Trump administration will be more aggressive on this front than previously thought.”
Bob Savage, Head of Markets Strategy and Insights at BNY, raised concerns about market volatility: “The central question today for markets is where is the bottom? … The catalyst of a foreign competitor to US-led AI dominance begs other questions about trade and semiconductor chips and energy needs … The markets are unsettled, and volatility is higher after last week’s strong returns.” He also noted the effect of lower liquidity due to the Lunar New Year holidays in Asia: “Also adding to today’s moves is the lack of Asian liquidity given the Lunar New Year holidays.”
Jon Withaar, Senior Portfolio Manager at Pictet Asset Management, responded to DeepSeek’s claims, saying, “We still don’t know the details and nothing has been 100% confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $100 million+ to this alleged $6 million number this is actually very positive for productivity and AI end users as cost is obviously much lower meaning lower cost of access.” He added that while this might be negative for Nvidia in the short term, it could ultimately benefit the AI sector: “Is it negative for Nvidia in the short term? Yes, as expectations are sky high on Blackwell (chips) and positioning is long in anything AI supply chain related, but ultimately anything that makes AI cheaper to implement is positive for those selling AI related products and applications and using AI related tools.”
Daniel Tan, Portfolio Manager at Grasshopper Asset Management, reflected on the selloff in tech stocks, saying, “The selloff in Japan and U.S. tech names should not be a surprise given high valuations based on P/E and P/B ratios. With the current rate of P/E priced for some U.S. and Japan tech names, the market is expecting future earnings to continue to justify the high prices of these tech names. That is definitely a high expectation to meet.”
The market reaction to these insights was significant, with tech stocks seeing steep declines. As a result, shares of companies like Nvidia, Microsoft, Meta, and Oracle took major hits, with Nvidia falling 12.4%, Microsoft down 4.3%, Meta dropping 3.1%, and Oracle plunging 7.5%. European tech stocks also saw losses, with ASML dropping 8.9%, and Siemens Energy falling nearly 20%.